Answer:

Financial Inclusion may be defined as the process of ensuring access to financial services and credit facilities when and where needed by vulnerable groups such as weaker sections and low income groups at affordable cost.

Role of banks is central to the idea of Financial Inclusion. Banks must also see that achieving financial inclusion is necessary for its long-term survival. For example, the banks need to tap into the untapped resources at the village level, which could be used for mobilisation. But as pointed by the deputy Governor of RBI, banks cannot do financial inclusion as "charity" but only as a viable business model and for long- term survival achieving this is a must.

Challenges faced and Nachiket Mor Panel Report recommendations

To address the issue of financial inclusion, the Mor panel proposed that every Indian resident above the age of 18, could have a full fledged bank account, automatically opened at the time of issuing the Aadhaar card.

Another challenge is the last mile problem i.e. to find viable last-mile solutions that extend financial access into the hinterland. The panel does not see traditional banks as the answer: since they give loans, a reckless expansion in number of banks can threaten the banking system. Therefore, the committee recommends the creation of a new class of banks that don't do any lending activities. It calls them 'payment banks', with a minimum entry capital of Rs 50 crore—one-tenth the Rs 500 crore norm for full-service banks.

These could be Banking Correspondent companies. These could be telecom companies offering remittance services via mobile. There are enough kirana stores, enough mobile recharge points that can act as BCs.

The other major challenge as the 2010 microfinance crisis in Andhra Pradesh showed, that companies in the financial inclusion space work with vulnerable segments of the population, and irresponsible lending can push them to the edge and result in defaults.

Accordingly, the committee emphasises "suitability" and "informed consent". It wants all financial institutions to have a "suitability policy" approved by its board. Before pitching a product to a poor customer, companies need to "carry out a limited due diligence of the customer and put in place a process to assess the appropriateness of any product offered to a customer."

Further, another major challenge will be the protection of vulnerable customers. By themselves, 'suitability' and 'informed consent' will not protect vulnerable consumers, the question being how does one ensure compliance?

The committee places some of the onus for this on the companies themselves, asking them to frame relevant internal rules and processes to ensure adherence to suitability. The committee also recommends the finance ministry create "a unified agency for customer grievance redress across all financial products and services". This, it says, should have a presence in every district, and customers should be able to register complaints over the phone, Internet and through the financial services provider directly.